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ETF Top Gainers – Silver, Energy and Inverse Volatility Win Out

by ETF Base on March 27, 2011

US equities continued their ascent with the S&P500 (SPY) up 2.8% despite a worsening nuclear crisis in Japan, an undeclared 3rd war front with Libya and multiple Middle East fiefdoms on the verge of collapse. Evidently, the prospect of cheap money, another round of Quantitative Easing rumored and record corporate profits continue to capture the momentum over any bad news in the geopolitical spectrum. For the week, the hottest ETFs were related to Silver, Energy and inverse volatility funds. Here are some top conventional and leveraged performers for the prior 5 trading sessions which may set the tone for this week’s trading:

non-Leveraged ETFs:

XIV – Credit Suisse Inverse VIX – Up 16%-This recently launched ETF has benefited from a continued uptrend in equities. Basically, as a double-negative if you will, of market enthusiasm, one should expect XIV to rally when the market does. See, the underlying VIX is the “fear index” based on put options to call options. The VIX spikes when investors become fearful and volatility increases. As markets rally and greed overtakes fear, volatility decreases. Since launching in Dec2010, XIV is up 42% versus 11% for the S&P500 (SPY). Just note that during a severe downturn, XIV can drop precipitously. Note also that XIV is an ETN, not an ETF, with the primary difference being that the investor takes on credit risk of the issuing company.

GAZ – Barclays iPath DJ Natural Gas – Up 13% -Natural gas had a strong week on the heels of the nuclear disaster unfolding in Japan. Investors must be pricing in the likelihood that nuclear power will face continued hurdles in the US, mandating further reliance upon natural gas longer than would have been anticipated in lieu of the disaster. The irony is that the newer nuclear reactors being designed now would have withstood the same calamity, but now they may never be built. GAZ has been up strongly in the past two weeks, rebounding from a dip since the start of the year. YTD, GAZ is only up 7% in spite of last week’s 13% gain. Note that GAZ is also an ETN, not an ETF.

SIL – Global X Silver Miners – Up 9% – This silver miner ETF launched roughly a year ago and has somewhat trailed the underlying returns on silver itself. Using SLV as a proxy, SIL is up about 89% since launch last April versus 108% for SLV. Note however, that there are differences in silver tax rates depending on the ETF you select due to gold and silver being treated as “collectibles”, so it may well be a wash in the end, depending on your tax bracket. Much of the driver behind the gold and silver move in the past few years has been the growing concern over the US Dollar’s lack of standing in the world and the fiat currency model which allows constant printing, while the output of precious metals is virtually at capacity and exist in finite quantities.

Leveraged ETFs:

TYH – Direxion Technology Bull 3X – Up 15% -Tech has continued to dominate this recovery, especially in light of expanding margins as productivity reaches decade highs. As corporations learned to cut payrolls and expand back to pre-Recession output without hiring back, margins have been helped in large part to efficiency-enabling technologies. While TYH is coming off a strong week, it’s one of the most volatile ETFs in existence, which is a detriment to leveraged ETFs due to daily rebalancing which results in ETF decay. We see it in all leveraged ETFs eventually; it’s just a matter of when the trend breaks. In spite of last week’s strong performance, TYH is only matching the return of the NASDAQ ETF (QQQ) with about a 4% return for each YTD (even though investors might have expected triple the return!).

AGQ – ProShares Ultra Silver – Up 12% -As cited in the non-leveraged performance of the silver bullion and mining ETFs, AGQ is the 2X daily return leveraged ETF. During uptrends, AGQ has been spectacular since silver has not seen a major correction in weeks. AGQ is up 22% in the prior month and 39% YTD. If you entered a year ago, your gain would be 305%. As difficult as it seems to believe, some leveraged ETFs can maintain their gains this long as long as the trend remains unbroken. However, a correction wipes out these gains quickly. With the hysteria was saw in gold and silver, you’ll definitely want to check out the silver pairs trade strategy whereby you can benefit regardless of the direction of underlying bullion.

ERX – Direxion Energy Bull 3X – Up 12%– Energy stocks have continued to benefit from the overweighting of fossil fuel companies in the indices, the potential demise of nuclear energy in the future of many countries, unrest in the Middle East and a continued global rebound. The fundamentals, geopolitics and the momentum seem to support continued strength in the energy complex. YTD, ERX is up 46%. The 1 Year return on ERX is 135%.